Llc A Few More Questions

[RoseK]

While the knowledgeable have been answering some questions today about a corp to LLC, I have a similar question for a return I have to do..

My client was a sole prop. and now that his business has grown he switched (without telling me) to a one person LLC last January 1. He registered in the state and got an EIN and just started with new businss cards and threw away his old ones. I know that a one person LLC is not treated as a partnership and he did not set up as a corporation. If I read all the LLC materials I could find correctly, his LLC is still reported on a Schedule C. IS THIS CORRECT?

What I don't understand and couldn't find enough information that made it clear in my mind, is what is the difference and is there an advantage?

His business is in the line of services in the health care industry, he provides PT treatments and is a licensed accupuncturist. He says he now is not liable. How does that work if it is true? I can't see how, when still using a Sch. C and NOT being a corporation. Can SOMEONE PLEASE explain this to me and let me know what I am missing after reading all the "advantages" in the reference books.

[taxmandan]

Typical misunderstanding

While the knowledgeable have been answering some questions today about a corp to LLC, I have a similar question for a return I have to do..

My client was a sole prop. and now that his business has grown he switched (without telling me) to a one person LLC last January 1. He registered in the state and got an EIN and just started with new businss cards and threw away his old ones. I know that a one person LLC is not treated as a partnership and he did not set up as a corporation. If I read all the LLC materials I could find correctly, his LLC is still reported on a Schedule C. IS THIS CORRECT?

YES, he still files on a Sch C, subject to S/E tax.


What I don't understand and couldn't find enough information that made it clear in my mind, is what is the difference and is there an advantage?

None as far as tax treatment is concerned. Liability is a legal issue. Does he have any employees? If not, he hasn't really gained anything by being an LLC. He will still have to personally guarantee any loans and accounts for the business.

His business is in the line of services in the health care industry, he provides PT treatments and is a licensed accupuncturist. He says he now is not liable. How does that work if it is true? I can't see how, when still using a Sch. C and NOT being a corporation. Can SOMEONE PLEASE explain this to me and let me know what I am missing after reading all the "advantages" in the reference books.

"He says he now is not liable." Boy, is he in for a surprise. Regardless of the entity type of the business, a person is liable if their own performance is proven to be negligent. The tax treatment doesn't affect liability issues, he really should seek knowledgeable legal advice to educate himself about his business.

And no, he can't rent his equipment to his LLC to avoid S/E tax.

[RoseK]

thanks taxmandan can I ask one more

I really figured he would still be liable no matter what. It is a joke that he thinks otherwise and I shake my head every time I look at the "box" of business materials he dropped of here. I knew everyone would get a smile over that part of my statement. I have tried and will advise him to talk to an attorney before he has a problem. In the mean time I told him not to cancel his liabilit policy, which he hasn't.

I thank God he does not have any property or depreciable items to transfer. The only non disposible item he has is the table which cost a whole $169. He goes to the homes and MD's offices.

I still, however, need to know wheter I have to do anything special for the taxes. On the Sch. C for the LLC., do I put that the business started Jan. 1, 2006? Or, do I assume the same start date for the orig. business?

Do you know of anything treated differently for taxes for a LLC which might not be obvious? And as I asked in my orig. post, what is the advantage of a LLC?
TU

[JoshinNC]

Original start date

Since it is a disregarded entity it doesn't exist for tax purposes, therefore there is no new start date. Do, however begin using the EIN for reporting.

[Bird Legs]

However, State taxes

may come into the picture. In Texas, an LLC is subject to state tax regardless of the type of entity it elects for the IRS.
You may want to mention this to your client.

[jainen]

an important issue

>>Do you know of anything treated differently for taxes for a LLC which might not be obvious? <<

Since liability protection seems to be an important issue for your client, he might want to strengthen his treatment as a separate entity by filing Form 1120. Of course, that also implies corporate books, stockholder meetings, and so on.

The idea is that a successful plaintiff could only reach the entity's assets (the table) and not his home or other personal possessions. It's a false hope because any damage would undoubtedly be done by himself, there being nobody else.

His first line of protection should be comprehensive insurance. Unfortunately, that will cost more now that he is an LLC.

[Joe Btfsplk]

Advantage of single-member LLC

There may be a perceived advantage in that customers might get the idea that his business is more than a one-man operation. For some things people prefer a larger, well-established company to a smaller one-man operation--so the LLC could imply that it is a larger company.

One of my clients operates a side-line business giving flying lessons. One his customers, a lawyer, advised him to set up an LLC for liability protection. As pointed out in other postings, this would not protect him if he were personally negligent. However it might protect him from liabilities under other circumstances. Anyway I advised him to make sure he was adequately insured which he said he was. He has two planes and set up a separate LLC for each plane.

[BOB W]

Llc

I also advise clients to separate assets like rental homes, planes, and even different types of businesses by Inc or LLCs, but I warn them > about "Front" and Back door exposure. The front door is the direct exposure to his customers. The Back door is the exposure to all his personal assets, including other entities.

Failure to operate according to his State Laws and having any Corporate or LLCs to get the vail of state protection peirced will put at risk anything in his name, including other businesses in his name.

When a client runs a high risk business of being sued, he is better off having nothing else in his name. The best protection is basic liability insurance and a VERY high umbrella policy. Umbrella policies are cheaper than having a high basic policy, atleast that is my understanding..

[RoseK]

Thank You ALL! And Do you know why the IRC is confusing?

Gosh, you all have really posted some items about LLC that I never had heard before. It is this type of feedback that truly makes being a member of a board like this worth while. This has really helped me. I started going through his books this afternoon and it your comments have given me some ideas of what to look for beside the tax items.

I received my quarterly statement and a newsletter today from my own investment advisors and they had some fun tax tidbits on the back. Did all of you know that:

there are 5,557,000 words in the income tax laws and regulations

it takes 250 pages to explain just one paragraph in the IRC

for 2007 there will be an increase of 8,000,000 more taxpayers subject to AMT

to enforce and oversee the tax code IRS and other govt. agencies spend $13,700,000,000